What is litigation funding, and is it lawful?

A litigation funder is a commercial third party that pays some or all of the costs of a claim. In return, it takes a share of any recovery. If the claim fails, the funder gets nothing.

In Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41, the High Court held that third-party funding was not, of itself, an abuse of process or against public policy. That case arose in New South Wales, which has abolished maintenance and champerty by statute.

Queensland has not passed an equivalent law. In Murphy Operator Pty Ltd v Gladstone Ports Corporation Ltd (No 4) [2019] QSC 228, Crow J declared class action funding agreements enforceable, without finally deciding whether the old torts survive here. The Court of Appeal agreed in Gladstone Ports Corporation Ltd v Murphy Operator Pty Ltd [2020] QCA 250. It held that the law of maintenance has been subsumed into the modern law of abuse of process. Part 13A of the Civil Proceedings Act 2011 (Qld) also recognises funded class actions.

How can liquidators and creditors fund insolvency claims?

Liquidators often have strong claims, such as unfair preferences and insolvent trading, but no money. There are four routes.

Third-party funding. Under section 477(2B) of the Corporations Act 2001 (Cth), a liquidator needs approval of the court, the committee of inspection or creditors for an agreement that may run more than three months. Most funding agreements need it. The court asks whether entering the agreement is a proper exercise of power. Robinson, in the matter of Reed Constructions Australia Pty Ltd (in liq) [2017] FCA 594 lists the usual factors. They are prospects, creditors’ interests, complexity, other funding options, the funder’s premium, creditor consultation and risk. If a liquidator signs first, the court can grant retrospective relief under section 1322(4)(d).

Assignment. Section 100-5 of the Insolvency Practice Schedule (Corporations) lets an external administrator assign a right to sue conferred by the Act. Creditors must be given written notice first. If proceedings have already started, the court must approve the assignment.

Creditor funding. Under section 564 of the Corporations Act, where property is recovered under a creditors’ indemnity for costs, the court may give those creditors an advantage in the distribution. In Ford Kinter & Associates Pty Ltd v Reliance Franchise Partners Pty Ltd (in liq) (No 2) [2025] FCA 139, the sole funding creditor was paid its whole debt first.

Public funding. ASIC’s Assetless Administration Fund offers grants for investigations, director banning reports and some asset recovery actions.

What terms are usually in a funding agreement?

Most agreements deal with:

  • The funder’s return. A percentage of the recovery, a multiple of the money deployed, or the greater of the two.
  • Adverse costs. Whether the funder pays the other side’s costs if the claim fails and provides security, often backed by after-the-event (ATE) insurance.
  • Control and settlement. Who instructs the lawyers and decides whether to settle.
  • Termination and conflicts. When the funder can walk away, what it is then owed, and how conflicts are managed.
  • Confidentiality and privilege. Sharing advice with a funder can risk waiving privilege, so use common interest and confidentiality terms.

The formula matters. Say a funder takes 30 per cent of the recovery or three times its outlay, whichever is greater. On a $1.2 million settlement after $250,000 of costs, that is $750,000, not $360,000.

Queensland solicitors cannot charge a percentage of the amount recovered. Section 325 of the Legal Profession Act 2007 (Qld) prohibits contingency fees. Conditional “no win, no fee” agreements are permitted under section 323. Section 324 allows an uplift fee, capped in litigious matters at 25 per cent of the legal costs otherwise payable, excluding disbursements. A non-compliant agreement is void under section 327.

What if you are defending a funded claim?

A funded claimant may have no assets. Defendants can seek:

  • Security for costs. A funder that takes the profit but does not stand behind adverse costs is a relevant factor. In Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43, the High Court held such a refusal was not an abuse of process; security is the remedy.
  • Disclosure. Courts can require a funding agreement to be disclosed, often with budget and risk assessments redacted.
  • Costs against the funder. A funder with a financial interest can be ordered to pay costs: Court House Capital Pty Ltd v RP Data Pty Ltd [2023] FCAFC 192.

Act early, as delay can count against security. Claimants should offer ATE insurance as security at the first hearing. In Great Barrier Reef Yacht Club Villas Pty Ltd v Insurance Australia Ltd [2025] QSC 256, a later swap of cash security for an ATE policy was refused.

How are class actions funded?

The Federal Court’s Class Actions Practice Note (GPN-CA) requires funding agreements to be disclosed to the Court and, with permitted redactions, to other parties.

A common fund order (CFO) lets a funder take its commission from all group members’ recoveries. In BMW Australia Ltd v Brewster [2019] HCA 45, the High Court held CFOs could not be made at the start of a case. In Kain v R&B Investments Pty Ltd [2025] HCA 28 (6 August 2025), all seven judges held the Federal Court can make a funder’s CFO at settlement or judgment. The power lies in sections 33V(2) and 33Z(1)(g) of the Federal Court of Australia Act 1976 (Cth). But it cannot make a “solicitors’ CFO” paying lawyers a percentage, because section 183 of the Legal Profession Uniform Law prohibits contingency fees.

Queensland’s Part 13A regime mirrors the federal one. In Kozik v Redland City Council [2025] QSC 124 (4 June 2025), the Supreme Court approved a funder’s commission of 25 per cent of the judgment sum. It acted under sections 103R and 103V of the Civil Proceedings Act. Only Victoria permits group costs orders (a percentage fee for lawyers), under section 33ZDA of the Supreme Court Act 1986 (Vic).

How are funders regulated?

The Australian Law Reform Commission (Report 134, 2018) and a Parliamentary Joint Committee (December 2020) recommended closer court supervision of funders, not a licensing regime. Since December 2022, the Corporations Amendment (Litigation Funding) Regulations 2022 have excluded funding schemes from the managed investment scheme, licensing, product disclosure and anti-hawking regimes. On 17 December 2025, ASIC extended two related instruments (2020/37 and 2020/38) to 31 January 2029 while the Government settles its policy. As at October 2026, no permanent Commonwealth regime has been legislated. Courts remain the main supervisors of funding terms.

What should you do if you need funding, or face a funded claim?

  1. Get a candid view of merits, quantum and the defendant’s capacity to pay.
  2. Prepare a funding brief under confidentiality and common interest terms.
  3. Compare returns, adverse costs cover, control and termination rights.
  4. Liquidators: plan for section 477(2B) approval or a section 100-5 assignment.
  5. Defendants: consider security for costs and funding disclosure at the outset.

How Taylor David can help

We help clients assess, obtain and negotiate funding, and act for funded parties and defendants. We understand how funders assess and price claims. We can:

  • assess whether a claim is fundable and prepare the brief;
  • negotiate funding agreements and ATE insurance;
  • seek approval of liquidators’ funding agreements and assignments;
  • act in funded commercial disputes and shareholder disputes; and
  • defend funded claims, including security for costs applications.

This work sits within our litigation and insolvency practices.